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Here’s a quick review of the likely market movers for this week.
Given the light calendar and end of week Good Friday many expect
a quiet range bound week. However there are a number of very
potent market moving events that could hit, and we don’t just
refer to the Cyprus bailout results.

A typically light end of month economic calendar helps make the
following events potentially more influential as markets grope
for direction

Cyprosis: Deterioration of Cyprus caused by hardening
of cash arteries that supply it, and side affects related to
harsh treatment regime of enlarged banking sector infected with
cash from tax cheats which in turn causes irritation, and
sensitivity in Germany.

1. SPECULATION ON CYPRUS OUTCOME, MARKET REACTION TO IT

We won’t have even an initial picture of the bailout details
until Tuesday, and further details may take longer yet.
Despite the drama and considerable risks and ramifications,
markets’ reactions worldwide were fairly subdued last week,
suggesting that they expected a solution, or at least a temporary
one that defers the pain until a later date that allows enough
time for a tradable relief rally. That rally, however, may well
be limited given:

Last week’s very muted pullback

Last week’s weak EU data

This week’s light economic calendar

On the other hand, with risk assets still in a very firmly
entrenched uptrend, news that plays into that trend will tend to
get more attention. Markets want to move higher and test decade
highs, so that momentum enough might be enough to fuel a Cyprus
relief rally for risk assets and especially the EUR and GIIPS
stock indexes.

See here for further details on how the
latest outbreak of “Cyprosis” did and didn’t change the EU
situation.

Pay careful attention to how the consensus settles on whether
Cyprus’s tough treatment (compared to that of Greece) is an
exception (given its tiny GDP and role as home of tax cheats) or
a harbinger of tougher treatment from the EU.

As we’ve noted in past posts, Germany has elections coming this
fall and Merkel & Co. need to show they’re not giving out
German taxpayer cash unless it’s absolutely necessary and on
their terms.

EU Tensions With Russia? Probably Not

Considering the amount of Russian cash potentially at risk,
especially from those in power or connected to it, Russian
leaders have been remarkably quiet.

This silence supports the theory that in fact Putin is ok with
the Cyprus bank robbery, because it fits with his own desire to
encourage repatriation of that cash without having to
take any blame for it. Certainly there’s evidence that Putin and
those close to him knew what was coming. See here for
further details.

2 – 3. Italy

There are two potentially market moving events this week from
Italy.

Coalition Forming?

Pier Luigi Bersani, leader of the centre left and Brussels’
preferred alternative , is trying to wrap up a coalition
government this week. If he can’t, then the President could
install another unpopular pro-austerity technocrat, leading to
more unrest and political uncertainty as markets anticipate yet
another election in the coming months.

That uncertainty would undermine further undermine confidence in
Italy’s (and thus the EU’s) recovery. Confidence in that recovery
is all that’s keeping markets from another bout of EU
anxiety. Actual economic performance or progress on fixing the
EU’s fundamental problems, (discussed here ) certainly hasn’t been reassuring.

Bond Auction

Italy has an important auction of benchmark 10 year notes. Unlike
auctions of shorter maturity paper, sales of longer maturity
notes provide a better test of market confidence. EU officials
thus do their best to ensure that all looks rosy. Remember,
however, that it was the bond markets that essentially forced out
Berlusconi. If the EU feels Italians need a reminder to act
responsibly, it might let this auction go unsupported.

4-5. Anticipation: Of 2013 Q1 Earnings, Japan Stimulus

This week’s quiet economic calendar will allow markets time to
speculate on two big events in the weeks to follow, the start of
Q1 earnings season and the first BoJ meeting and rate
announcement under its new Governor Haruhiko Kuroda.

Q1 Earnings

Third and fourth quarter earnings for 2012 were not only
disappointing, they were also down from 2011. Historically,
two straight down quarters (year over year) happen only in
recessions. Estimates for the first quarter of this year are up ~
5% from 2012, but have been revised steadily lower since
September, and those downward revisions are now accelerating.

Late last week we had downward earnings revisions from either
management or analysts for a variety of bellwether sector leaders
like Caterpillar, Airgas, Cisco, JDS
Uniphase, Guess, Federal Express, and Oracle. With
over a week remaining in the first quarter, could well see more
downward revisions. Granted, these could just be part of the
usual process of making lowball estimates to set up a sudden rash
of announcements that exceed expectations and spark a contrived
rally (as the fact that these expectations were just revised
lower tends to get forgotten).

BoJ Meeting

Japanese stocks and those related to them have been rallying for
months on little else but anticipation of new stimulus and a
further devalued Yen. Headlines that feed or cool speculation
about the BoJ actually doing something after months of nothing
but talk could continue to be a prime market driver, at least in
Asian markets.

6-10. CALENDAR EVENTS

It’s a typical end of month very light docket of scheduled
events. The above events likely to be more influential unless
some major surprises in the view events that matter

Celebrations for Good Friday should drain liquidity in
Western markets Thursday and Friday, suggesting quiet range bound
trade in markets that are open, and forex markets worldwide
(which rarely close). As always, however, these low liquidity
days are potentially extra volatile if there is any major
surprise.

Some very big EUR depositors in Cyprus banks learned a
painful lesson last week about having too much in one currency in
one domicile. Those exposed to the other GIIPS nations no doubt
are taking note. Meanwhile Japan prepares to devalue the Yen, and
the US is actively churning out $85 bln per month in new dollars.
See here or here for details on the latest guide to
safer, simpler ways to diversify your assets and income stream
by currency exposure.

11. Technical Momentum

Look at almost any daily or weekly chart of your preferred risk
barometer, like the S&P 500. Call it crisis fatigue, call it
simple experience with how EU bailout deals tend to be done at
the last minute. The current risk rally was stopped last week but
hardly dented. Sure, the fundamentals don’t support this rally,
as we discussed here. So what? They haven’t slowed the rally
yet, so we can’t assume they will for the coming week other. Risk
on until proven otherwise.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL
PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING
DECISIONS LIES SOLELY WITH THE READER.